The advantages and disadvantages of a subsidiary overseas

Setting up a subsidiary overseas does not just present advantages. SMEs also need to consider a certain number of risks. 

Opening a subsidiary overseas can offer numerous advantages: increased proximity to the local market, positive impact on the company’s competitiveness and even better distribution of risks associated with diversification. However, SMEs need to consider the disadvantages, such as exchange rates or the subsidiary's set-up costs. 

Advantages of a subsidiary overseas:

  • Proximity. Setting up a subsidiary overseas allows you to put yourself at the heart of your target market. An undeniable plus which can prove helpful, for example, when it comes to expanding your network of contacts, but also to immediately take the pulse of the market. It also avoids the problems of different time zones.
  • Market size. Companies present overseas usually benefit from a market which is clearly bigger than in Switzerland.
  • Competitiveness. Leaving the Swiss bubble in order to mix with international competition increases your company’s competitiveness. Readjustment and improvement of your activities to tackle the new challenges then prove beneficial. Ultimately, the experience acquired over the border is also profitable on the Swiss market.
  • Diversification. In a crisis, it is very useful for a company to be present on more than one market, so that it is not dependent on just one market. Generally, the greater a company’s diversification, the less affected it is by the consequences of a crisis. This is also true in terms of variations on the currency market. Companies are therefore recommended not to carry out all their activities in the same currency. 

Disadvantages of a subsidiary overseas:

  • High costs. Opening a subsidiary overseas is expensive (employees’ salaries, rental of premises, maintenance costs, etc.). Working with distribution partners can prove more advantageous from this point of view. In many cases, companies operating overseas combine these two options.
  • Variations on the currency market. A company with many subsidiaries overseas and issuing invoices in one foreign currency runs the risk of seeing its profits drop if the Swiss franc gets stronger. However, this can also be an advantage where the company exports its international production to Switzerland.
  • Infringement. Swiss companies are increasingly victims of infringement overseas. Keeping at least part of your manufacturing process in Switzerland helps you protect yourself, in part, against this risk.

Sign up to our newsletter to stay informed (on the top right).


Information

Last modification 24.07.2018

Top of page

https://www.kmu.admin.ch/content/kmu/en/home/concrete-know-how/import-export/establishing-subsidiary-overseas/advantages-disadvantages.html